A stored-value card refers to monetary value stored on a card not in an externally recorded account, while with a prepaid card money is on deposit with an issuer similar to a debit card. That is, the term stored-value card means the funds and or data are physically stored on the card, while with a prepaid card the data is maintained on computers affiliated with the card issuer. Another difference between stored value (SV) cards and prepaid (PP), referred to collectively as SV/PP or electronic payment cards, is that prepaid debit cards are usually issued in the name of individual account holders, while stored value cards are usually anonymous.
Prepaid cards are categorized into two broad types—open system or open loop and closed system or closed loop. Closed system prepaid cards are typically merchant gift cards. These cards can be purchased for a fixed amount and used only at the merchant that issued the card. They generally do not require customer identification and cannot be redeemed for cash.
Semi-closed system prepaid cards are similar to closed system prepaid cards except that cardholders can redeem these cards at multiple locations within a geographic area. These cards are usually issued by a third party and not the merchant themselves. Examples include university and mall cards.
Open system prepaid cards operate on major credit card networks and can be used anywhere including on worldwide ATMs. They usually have the cardholder name. Semi-open prepaid cards are similar to open-system prepaid cards except that they do not allow for ATM withdrawals.
Open system prepaid cards are compact and offer a convenient way for physical transport of funds. Funds can be added at one location and then withdrawn from another location via ATMs in one or more countries making them popular with money launderers. Closed system cards typically have lower limits and cannot be redeemed for cash and hence may not be as popular a vehicle for money laundering.
Stored value/pre-paid cards (SV/PP Cards) allow for anonymous loading of monetary value on these cards by Money Launderers at multiple channels or entry points—namely web, mobile, agents and other point of sale mechanisms. Currently all of these channels operate independently and without knowledge of transactional activities on other channels. Current regulations do not require agents and/or banks to notify regulators—Financial Crimes Enforcement Network (FinCEN) in the US as well as regulators of other countries when the total value of multiple transactions add up $10,000 or more to a single SV/PP card. These cards can be easily and without restrictions be carried across borders.
Stored Value/Pre-Paid cards (SV/PP cards) allow for multiple channels of disbursements or exit points namely physical point of sale locations, web, ATM and mobile. Money Launderers can avoid detection by loading multiple smaller value stored value/pre-paid cards simultaneously on different channels for entry into the system. This practice also known as structuring or smurfing allows the money launderer to avoid detection by having smaller transactions that do not require regulatory oversight.
Money movement from a compromised entry source to a SV/PP card to being converted back to cash or cash equivalent is very rapid and convenient. Money Movement between countries is very easy and rapid, making recapture of laundered funds more difficult based on the plurality of regulations and jurisdictions that can apply.
The difficulty with prepaid cards is that there is usually no aggregated view available for end-to-end flow of money through the system like multiple re-loads of the same card, purchase of multiple cards, multiple transactions on the cards for layering the money and withdrawal of funds from the system using one or more channels.
Accordingly, it would be desirable to provide an improved method for system for identifying electronic payment card money laundering.